That is because the shadow inventory, homes owned by banks but kept off the market, still lingers.
But Housing Secretary Shaun Donovan, says he and the rest of the Obama administration do not fear the the shadow inventory.
But should they? Maybe not.
But lets take off the rose-colored glasses for a moment. We are not out of the woods just yet. It is foolish to think that the nation’s shadow inventory is going to evaporate overnight.
The fact is the banks are in no rush to eliminate the shadow inventory. In fact it is not in their best interest to do so. They will slowly bleed out their inventory, because if they put too many properties on the market at once, they will push prices down, which would in turn push the value of the homes they still have in their inventory down.
And if they actually dumped all their inventory on the market at once?
If they actually managed to either foreclose or sell off every last home they posses, the banks would have to write down their assets within 90 days of any foreclosure or sale.
Forgetting for a moment the near-statistical impossibility of the banks being able to sell or foreclose on all their outstanding inventory all at once, the banks would become certifiably insolvent if in fact they managed to clear their inventory in one swift swoop.
The reality is we will continue to lumber along in this state of new normalcy, where home prices may continue to rise but millions of homeowners will remain underwater.
Right now about 31% of homeowners are underwater today. It’s less than in years past, but it is still too high of a number for my liking.
So is there any good news? There is some. The banks are getting rid of their inventory, albeit slowly, and as they are they are not replacing it nearly as quickly as they used to.
So as less homes are added to the U.S.’s shadow inventory, the problem will start to diminish, and the economy will continue to heal.
In fact the supply has decreased about 15 percent from last year, which is no small feat, all things considered.
But it is foolhardy to suggest, as Secretary Donovan did, that the worst appears to be over. There is just not enough concrete data to suggest that. I am not saying it is wishful thinking, but lets be real here.
There are a lot of 2007 loans that are coming up for re-pegging, which could cause some homeowners’ interest rates to shoot back up.
If that happens, you may very well see an influx of new homes become part of the shadow inventory.
So if I were to advise any potential homebuyer or investor, it is best to be cautious, and see the glass as half-empty.
Our government may want to paint a rosy picture, but they have been wrongfully optimistic before.
The bottom line is until more people have sustainable jobs, only then will we be able to breathe a sigh of relief.
It is just not time to celebrate just yet.
From The Trenches,